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China Huarong Expects Profit Decline Amid Former Chief Lai Xiaomin’s Corruption Investigation

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Lai Xiaomin, the disgraced former chairman of China Huarong.

China Huarong Asset Management Co, one of China’s big four state asset management companies (AMC), is expecting a significant profit drop for the first half this year, it said in a profit warning yesterday.

As China continues its deleveraging effort, Huarong is issuing a negative outlook based on increased provisions due to its credit exposure and rising interests as a result of growing external financing.

The company also said that the higher market volatility has caused valuations of some of its financial assets to depreciate.

Huarong is still suffering from the outcome of the investigation of Lai Xiaomin, its former party secretary and chairman. Lai was taken by authorities and investigated for corruption in April in one of the most high-profile corruption case in recent years.

Lai is reportedly accused of hoarding RMB270 million (US$40 million) of cash at his home from his corruption activities. The cash weighted three tons, according to a report by China’s Caixin during the weekend. The article has since been taken down and censored by authorities. Corrupt Chinese officials often hide cash at home because they couldn’t put the money in the bank or spend it.

After Lai’s downfall, Huarong has launched a company-wide inspection of more than 10,000 employees in May to "clean the house".

Some senior managers of Huarong’s affiliates were affected following Lai’s investigation. In July 27th, a document circulating online showed that Huarong Asset Management suggests Huarong Securities to remove Zhu Xianzhong from his positions as chairman, director and legal representative of Huarong Securities, and make him general manager focused on risk management.

Then, China’s Securities Regulatory Commission announced on August 10 that Zhu is no longer a member of its initial public offering review commission. It’s unclear if Zhu is connected with Lai’s corruption case.

 


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